Dollar Hits 3-Month Low as Economic Data Push Back Rate Hike

A broad measure of the U.S. currency fell to its lowest level in more than three months on Wednesday as weaker-than-forecast economic reports validated the Federal Reserve’s decision to hold interest rates near zero when it met last month. Traders pushed out bets on Fed liftoff to 2016, sending the dollar to its weakest in a seven weeks versus the euro and down for a third day versus the yen.

“What you’re seeing in the movement right now is an unwind of the bullish-dollar story,” said Douglas Borthwick, head of foreign-exchange at New York brokerage Chapdelaine & Co. “The Fed has no reason to raise rates when you’re getting the data that we’ve been getting lately.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus major 10 peers, lost 0.7 percent to 1,185.98 as of 2:24 p.m. in New York, touching its lowest on a closing basis since June 30.

The greenback slumped 0.7 percent to $1.1463 per euro, after falling to its weakest since Aug. 25. The dollar fell 0.7 percent to 118.91 yen.

Fed Watch

Traders are scaling back their expectations for higher rates as dissent grows within the Fed amid signs of weakness in the domestic economy.

Board of Governors member Daniel Tarullo told CNBC Tuesday that he doesn’t currently favor raising rates in 2015, lining up with his colleague Lael Brainard, who also made the case for patience this week. That contrasts with Chair Janet Yellen, Vice Chair Stanley Fischer, and New York Fed President William C. Dudley, who’ve all suggested the Fed will move this year.

Futures contracts indicate traders see a 29 percent likelihood the Fed will increase borrowing costs by December, down from 41 percent at the end of last month. The calculations are based on the assumption the effective fed funds rate will average 0.375 percent after liftoff, versus the current range of zero to 0.25 percent.

Shoppers spent less than forecast in September, a retail sales report showed Wednesday, casting a pall over consumption, which accounts for about 70 percent of the economy. Wholesale prices also fell the most since January, suggesting the central bank’s 2 percent inflation target is no closer to being met.

“The dollar will struggle,” said Sireen Harajli, a currency strategist at Mizuho Bank Ltd. in New York. “Consumer spending has been one of the brighter spots in the economy and, if we start to see that slowing down, that will be quite negative for the outlook.”

Nothing is going right for the dollar these days.A broad measure of the U.S. currency fell to its lowest level in more than three months on Wednesday as weaker-than- forecast economic reports validated the Federal Reserve's decision to hold interest rates near zero.